EMI share options enable employers to offer employees an equity interest in their employing company, with significant tax advantages to both the employee and employer. EMI share options are specifically designed for SME trading companies with growth potential and are intended to help companies recruit and retain employees by aligning employees’ and employers’ interests in the most cost effective way.
EMI share option schemes are fairly straight forward to implement and operate, but companies who have schemes in place do need to be mindful of the ongoing qualifying conditions, for both companies and the employee option holders, and potential disqualifying events.
If an employee option holder reduces their working hours to fewer than 25 hours a week or, if less, does not devote at least 75% of their working time to their employing company (or its group), this will be a disqualifying event.
With employees furloughed, on reduced hours/days or on unpaid leave as a result of Covid-19, there has been some concern that this would trigger a disqualifying event for employers and employees participating in EMI share schemes.
Thankfully, the government tabled an amendment to the Finance Bill 2021 which amends the current EMI share scheme rules relating to the commitment of employees’ working time and disqualifying events. If an employee is not required / unable to work for reasons connected with coronavirus, this will not be treated as a disqualifying event.
This will mean that the tax advantaged status of EMI options held by staff who are on furlough will be maintained. It should be noted that, currently, the exemption to the working time disqualifying event is time limited and applies if the furlough or other coronavirus related event occurs between 19 March 2020 and 5 April 2021.
Murrell Associates LLP 09 September 2020
The information provided in this article is a summary for general information purposes only and does not constitute legal or other professional advice and cannot be relied upon as such. Any law quoted in this article is correct as at the above date. Appropriate legal and financial advice should be sought for specific circumstances before any action is taken.